ITAD Ruling No. 029-00

January 27, 2000 ITAD RULING NO. 029-00 RP-UK Article 12 NIRC Sec. 175 Sec. 176 [DA-041-1-27-97] Castillo Laman Tan Pantaleon & San Jose The Valero Tower 122 Valero Street, Salcedo Village 1227 Makati City Attention: Atty . Maria Victoria D . Sarmieto Atty . Virgina B . Viray Gentlemen : This refers to your letter dated September 10, 1999 requesting in behalf of your client, Glaxo Group Ltd. (GGL), for confirmation of your opinion as follows: 1. that the capital gains derived by GGL from its assignment of shares of stock of Duncan Pharmaceuticals Philippines Inc. (DPPI) to Glaxo Wellcome Philippines Inc. (GWPI) is not subject to Philippine Income Tax and consequently, to Withholding Tax; 2. that the transfer of shares of stock by GGL to GWPI is subject to documentary stamp tax of P1.50 for every P200.00 of the par value of the DPPI stock, or a fraction thereof; and 3. that the issuance of shares of stock of GWPI in exchange for shares of stock of DPPI is subject to documentary stamp tax on original issuance of stock at P2.00 for every P200.00 of the par value of the GWPI shares or a fraction thereof. It is represented that GGL is a corporation organized and existing under the laws of the United Kingdom with no permanent establishment in the Philippines as evidenced by a Certificate of Non-Registration dated August 18, 1999 issued by the Securities and Exchange Commission; that GGL is the registered owner of 1,066,113 shares in DPPI, a corporation organized and existing under Philippine laws; that on August 2, 1999, GGL executed a Deed of Assignment covering all its 1,066,113 shares (inclusive of 6 qualifying shares held by its nominee directors) in DPPI with a total book value of P191,409,251.00 in favor of GWPI, a corporation organized and existing under the Philippines laws; and that in exchange of such transfer, GWPI issued its 4,530,611 shares to GGL. In reply, please be informed that Article 12 of the RP-UK Tax Treaty provides as follows: "Article 12 Gains from the Alienation of Property (1) Capital gains from the alienation of immovable property as defined in paragraph (2) of Article 6, may be taxed in the Contracting State in which such property is situated. prcd (2) Capital gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing professional services, including such gains from the alienation of such a permanent (alone or together with the whole enterprise) or of such a fixed base, may be taxed in the other State. (3) Notwithstanding the provisions of paragraph (2) of this Article, capital gains derived by a resident of a Contracting State from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships and aircraft shall be taxable only in that Contracting State. LibLex (4) Capital gains from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the alienator is a resident. (Emphasis supplied) (5) The provision of paragraph (4) of this Article shall not affect the right of a Contracting State to levy according to its own law a tax on capital gains from the alienation of movable property derived by an individual who is a resident of the other Contracting State and has been a resident of the Contracting State at any time during the six years immediately preceding the alienation of the property." Applying the foregoing provisions and based on the documents presented to support the application of GGL, this Office confirms that the transfer made by GGL in favor of GWPI covering the shares of stock in DPPI is not subject to the capital gains tax. Moreover, this Office also confirms that transfer of shares of stock of GGL in DPPI in favor of GWPI, and the issuance of GWPI shares in exchange of DPPI share are subject to documentary stamp tax under Sections 176 and 175 of the Tax Code, respectively. This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. (BIR Ruling [DA-041-1-27-97]) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group